Mongolian government demands bigger stake in gold, copper mine

ULAN BATOR, Mongolia — Mongolia’s government is demanding a bigger stake in the massive gold and copper mine it is developing in conjunction with mining companies Rio Tinto and Ivanhoe. A statement released by the government this week says the Cabinet had asked the ministers of finance and minerals to re-negotiate an investment agreement signed in 2009 in an effort to increase Mongolia’s stake in the Oyu Tolgoi copper and gold mine.Canada’s Ivanhoe Mines and Anglo-Australian miner Rio Tinto are jointly developing the $4.6 billion Oyu Tolgoi mine, but the project has met with resistance from the public and some lawmakers who say Mongolia’s stake in the project should be bigger.

Oyu Tolgoi is one of several big projects Mongolia has been debating as it strives to ensure local interests are protected while tapping foreign expertise needed to develop the resources.

Mongolia currently owns 34 percent of the Oyu Tolgoi joint venture company, but some lawmakers have demanded the stake be raised to at least 50 percent.

The company said in a statement that the current agreement is fair and there was no need to revise it.

“The investment agreement gives Mongolia the benefits of ownership, while not requiring the government from having to put up any money up front,” Oyu Tolgoi chief executive officer Cameron McRae said in a statement.

“It is a robust agreement enshrined in Mongolian law and was signed by all parties in good faith on the understanding it would not be changed,” he said.

The mine project, which is 50 percent complete, is expected to produce 1.2 billion pounds of copper and 650,000 ounces of gold per year in the first decade of operation beginning from 2013.

The project has also fueled discontent in the country. Protesters last year called for the cancellation of the mine investment citing uncertain tax rates.

In 2009, Mongolian lawmakers voted to phase out a windfall profits tax in 2011, removing the last obstacle to a deal with Rio Tinto and Ivanhoe Mines to develop the Oyu Tolgoi mine. The tax was enacted in 2006 at a time of surging metals prices, but miners said it made tax rates too uncertain and would discourage investment.

McRae called the investment agreement a “cornerstone agreement” whose stability was important to investor confidence in the country.

Earlier this month, Mongolia’s National Security Council rejected a plan for U.S. mining giant Peabody Energy, China’s Shenhua Group and a Russian-Mongolian consortium to jointly develop the keenly sought Tavan Tolgoi coking coal deposit in the Gobi Desert.

Mongolian officials said they would hold negotiations with the various companies involved to change the ownership.